George Weston said it expects adjusted full-year operating margin from Weston Foods to be "consistent" with the 16% margin it has achieved in the first nine months of 2012.

For the group as a whole, net income fell 39.4% in the third quarter thanks to lower profits from Loblaw, which ran up higher labour costs and invested in its IT network and supply chain. Operating income was down 14.7%. Sales were up 1% thanks to higher sales from its Loblaw stores, although the retailer's same-store sales fell.

George Weston said it expects its full-year adjusted basic net earnings per common share to be down year-over-year, as Loblaw expects its profits to be down.

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GeorgeWeston Limited - 2012 Third Quarter Results(1).

TORONTO, Nov. 20, 2012 /CNW/ - GeorgeWeston Limited (TSX: WN) ("GWL") today announced its consolidated unaudited results for the 16 weeks ended October 6, 2012 and announced a quarterly common share dividend increase to $0.38 per share, representing an increase of $0.02 per common share.

GeorgeWeston Limited and its subsidiaries are together referred to as the "Company". The Company's Q3 2012 Quarterly Report to Shareholders, including the Company's unaudited interim period condensed consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the 16 and 40 weeks ended October 6, 2012, is available in the Investor Centre section of the Company's website at www.weston.ca and has been filed with the System for Electronic Document Analysis and Retrieval ("SEDAR") and will be available at www.sedar.com.

CONSOLIDATED RESULTS OF OPERATIONS

(unaudited)

($ millions except where otherwise indicated)

16 Weeks Ended

40 Weeks Ended

For the periods ended as indicated

Oct. 6, 2012

Oct. 8, 2011

Change

Oct. 6, 2012

Oct. 8, 2011

Change

Sales

$

10,164

$

10,061

1.0 %

$

25,015

$

24,740

1.1 %

Operating income

$

475

$

557

(14.7) %

$

1,072

$

1,257

(14.7) %

Adjusted operating income(2)

$

506

$

507

(0.2) %

$

1,181

$

1,327

(11.0) %

Adjusted operating margin(2)

5.0%

5.0 %

4.7%

5.4 %

Net interest expense and other financing charges

$

131

$

94

39.4 %

$

247

$

258

(4.3) %

Income taxes

$

101

$

112

(9.8) %

$

215

$

253

(15.0) %

Net earnings attributable to shareholders of the Company

$

160

$

264

(39.4) %

$

421

$

526

(20.0) %

Net earnings

$

243

$

351

(30.8) %

$

610

$

746

(18.2) %

Basic net earnings per common share ($)

$

1.14

$

1.94

(41.2) %

$

3.02

$

3.81

(20.7)%

Adjusted basic net earnings per common share(2) ($)

$

1.49

$

1.44

3.5 %

$

3.44

$

3.85

(10.6) %

Adjusted EBITDA(2)

$

765

$

743

3.0 %

$

1,816

$

1,901

(4.5) %

Adjusted EBITDA margin(2)

7.5%

7.4 %

7.3%

7.7 %

GeorgeWeston Limited's third quarter 2012 adjusted basic net earnings per common share(2) were $1.49 compared to $1.44 in the same period in 2011, an increase of $0.05. The increase was primarily attributable to an increase in operating performance at Weston Foods and a decrease in income tax expense, partially offset by a decline in the operating performance of Loblaw Companies Limited ("Loblaw"). The decline in the operating performance of Loblaw was primarily due to an increase in labour and other operating costs and incremental costs related to investments in information technology ("IT") and supply chain(3), partially offset by increases in gross profit and foreign exchange gains and higher operating income from its Financial Services segment. Increased labour costs included incremental investments in Loblaw's customer proposition that were not covered by operations. Incremental investments in shrink also partially offset the increase in gross profit.

The Company's basic net earnings per common share were $1.14 compared to $1.94 in the same period in 2011, a decrease of $0.80. Adjusted basic net earnings per common share(2) increased $0.05 and excluded the year-over-year unfavourable net impact of certain items, primarily the impact of certain foreign currency translation and the fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares, partially offset by the fair value adjustment of commodity derivatives at Weston Foods.

Subsequent to the end of the third quarter of 2012, Loblaw announced its plan to reduce a number of head office and administrative positions. Focused primarily on management and office positions, the plan is expected to affect approximately 700 jobs. Loblaw expects to take an estimated charge of $60 million in the fourth quarter of 2012, reflecting the anticipated costs of the planned reductions.

The Company uses non-GAAP financial measures. See the "Non-GAAP Financial Measures" section of this News Release for more information on these non-GAAP financial measures.

OPERATING SEGMENTS

Weston Foods

(unaudited)

16 Weeks Ended

40 Weeks Ended

($ millions)

Oct. 6, 2012

Oct. 8, 2011

Oct. 6, 2012

Oct. 8, 2011

Sales

$

541

$

545

$

1,366

$

1,362

Operating income

$

114

$

77

$

186

$

151

Adjusted operating income(2)

$

94

$

87

$

218

$

209

Adjusted operating margin(2)

17.4%

16.0 %

16.0%

15.3 %

Adjusted EBITDA(2)

$

112

$

105

$

263

$

254

Adjusted EBITDA margin(2)

20.7%

19.3 %

19.3%

18.6 %

Weston Foods sales in the third quarter of 2012 decreased by 0.7% to $541 million from $545 million in the same period in 2011. Foreign currency translation positively impacted sales by approximately 0.4%. Excluding this impact, sales decreased 1.1% mainly due to a decrease in volumes of 1.2% compared to the same period in 2011.

Weston Foods operating income in the third quarter of 2012 was $114 million compared to $77 million in the same period in 2011, an increase of $37 million. The increase was primarily due to the favourable impact of the change in the fair value adjustment of commodity derivatives and share-based compensation net of equity derivatives of $35 million and an improvement in adjusted operating income(2) of $7 million as described below.

Weston Foods adjusted operating income(2) was $94 million in the third quarter of 2012 compared to $87 million in the same period in 2011. WestonFoods adjusted operating margin(2) was 17.4% compared to 16.0% in the same period in 2011. Adjusted operating income(2) in the third quarter of 2012 was positively impacted by lower commodity and other input costs and the benefits realized from productivity improvements and other cost reduction initiatives. These benefits were partially offset by lower sales volumes compared to the same period in 2011.

Loblaw

(unaudited)

16 Weeks Ended

40 Weeks Ended

($ millions)

Oct. 6, 2012

Oct. 8, 2011

Oct. 6, 2012

Oct. 8, 2011

Sales

$

9,827

$

9,727

$

24,139

$

23,877

Operating income

$

403

$

419

$

928

$

1,063

Adjusted operating income(2)

$

412

$

420

$

963

$

1,118

Adjusted operating margin(2)

4.2%

4.3 %

4.0%

4.7 %

Adjusted EBITDA(2)

$

653

$

638

$

1,553

$

1,647

Adjusted EBITDA margin(2)

6.6%

6.6 %

6.4%

6.9 %

In the third quarter of 2012, the Loblaw team executed the plan. Targeted investments in the customer proposition are delivering clear results, the infrastructure program remains on track, and planned efficiencies are beginning to come through. Loblaw is pleased with the fundamental progress to date.

Loblaw sales in the third quarter of 2012 increased by 1.0% to $9,827 million from $9,727 million in the same period in 2011. Retail segment sales increased by 0.7% and same-store sales declined by 0.2% (2011 - increased by 1.3%). Sales growth in food, drugstore and gas bar was modest, sales in general merchandise, excluding apparel, declined moderately and sales in apparel were flat. Loblaw experienced modest average quarterly internal food price inflation during the third quarter of 2012 and moderate average quarterly food price inflation during the third quarter of 2011, which were lower than the average quarterly national food price inflation of 1.8% (2011 - 4.9%) as measured by "The Consumer Price Index for Food Purchased from Stores". In the last twelve months, Loblaw opened 19 corporate and franchise stores and closed eight corporate and franchise stores, resulting in a net increase of 0.3 million square feet, or 0.6%. Loblaw sales in the third quarter of 2012 were also positively impacted by an increase in revenue from its Financial Services segment, which includes President's Choice Bank, a subsidiary of Loblaw. The increase in Financial Services segment revenue was primarily driven by higher PC Telecom revenues and higher interest and interchange fee income when compared to the same period in 2011.

Loblaw operating income in the third quarter of 2012 was $403 million compared to $419 million in the same period in 2011, a decrease of $16 million. The decrease was mainly due to the gain on sale of a portion of a Loblaw property recorded in the third quarter of 2011 of $14 million and a decline in adjusted operating income(2) of $8 million as described below.

Loblaw adjusted operating income(2) was $412 million in the third quarter of 2012 compared to $420 million in the same period in 2011. Adjusted operating margin(2) was 4.2% compared to 4.3% in the same period in 2011. The decreases in adjusted operating income(2) and adjusted operating margin(2) were primarily attributable to an increase in labour and other operating costs and incremental costs related to investments in IT and supply chain(3), partially offset by increases in gross profit and foreign exchange gains and higher operating income from its Financial Services segment. Increased labour costs included an estimated $10 million of incremental investments in Loblaw's customer proposition that were not covered by operations. Incremental investments in shrink also partially offset the increase in gross profit by an estimated $5 million.

NET INTEREST EXPENSE AND OTHER FINANCING CHARGESIn the third quarter of 2012, net interest expense and other financing charges increased by $37 million to $131 million compared to the same period in 2011. Net interest expense and other financing charges are impacted by the fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares. This fair value adjustment had an unfavourable year-over-year impact in the third quarter of 2012 of $35 million. Excluding this impact, net interest expense and other financing charges increased by $2 million compared to the same period in 2011.

INCOME TAXESIn the third quarter of 2012, income tax expense decreased to $101 million from $112 million, and the effective income tax rate increased to 29.4% from 24.2%, compared to the same period in 2011. The increase in the effective income tax rate was primarily due to non-deductible foreign currency translation losses recorded in the third quarter of 2012 (2011 - non-taxable foreign currency translation gains), partially offset by reductions in the federal and Ontario statutory income tax rates and a recovery on the revaluation of deferred tax assets on the enactment of the revised Ontario corporate income tax rate.

OUTLOOK(1)The Company is updating its fiscal 2012 outlook.

For the full year 2012, Weston Foods expects to deliver sales slightly lower than 2011. Weston Foods expects full year adjusted operating margin(2) to be consistent with the margin experienced on a year-to-date basis.

For the fourth quarter of 2012, Loblaw estimates adjusted operating income(2) to be generally in line with the fourth quarter of 2011.

GeorgeWeston Limited anticipates full year adjusted basic net earnings per common share(2) to be down year-over-year, as Loblaw expects its full year earnings performance to be down year-over-year.